Wednesday, September 21, 2016

So, What's Going On In Japan?

That’s Japan’s bank Topix up almost 7 per cent after the BoJ announced its new QQE with yield control
policy which will see the bank look to “control short-term and
long-term interest rates” while putting forward an “inflation-overshoot
commitment”.

You might remember an opposite reaction
from the bank stocks to the BoJ’s decision to originally go negative…
If you don’t here’s Alberto Gallo of Algebris summarising the problems:

The key issue is the sustainability of banks’ business
models. As discussed at length by the BIS and ourselves previously, low
interest rates support banks with a one-off gain on their government
bond holdings, but they also erode profitability, equity valuations –
increasing their cost of capital –and reduce the banks’ ability to lend.
This is what has happened in Europe and Japan, and at the latest ECB
press conference in August, ECB President Draghi specifically talked
about the positive correlation between credit intermediation in the
Eurozone and bank equity prices. The BoJ shares similar concerns, with
some Japanese banks starting to impose negative rates on clients earlier
this year. In a meeting to assess the effectiveness of QE, Mr Kuroda
stated that central bankers should weigh the benefits of QE and negative
interest rates on corporates and consumers with its negative impact on
financial intermediation.